Mortgages - Negative Equity Bites Back

Negative equity bites back: Smaller mortgage lenders give something back to their borrowers as desparation hits

House prices have been tumbling of late, and some of the properties which have been purchased by consumers who have been starting out on the property ladder have been looking far from prosperous. This is due to negative equity, where the amount of money which is outstanding on the mortgage is in actuality more than the current property’s value on the market.

Away from the names of the most popular mortgage brokers which operate in the UK, smaller lenders are beginning to worry that some of the properties they have mortgaged are in negative equity currently. Further, there are concerns that such properties in their portfolio could provide harsh exposure to the current market. Intriguingly, it has been confirmed that some of these smaller lenders have began to take very inventive steps to try and resolve the situation at hand.

GMAC, a top ten lender back in the 2007 financial year, has revealed that they are offering a small handful of their consumers the opportunity to write off up to £25,000 of their current mortgage if they agree to re-mortgage elsewhere.

A company representative said it was "win-win", indicating that there are big advantages for the lender at hand as well as the borrower. This is because the recent demise of the secularization market has meant that some mortgage brokers are unable to finance debt.

Some of the small percentage of homeowners who are to benefit from this initiative are celebrating. This is because there are not only getting a significant proportion of their debt written off, but have the potential to get a better mortgage package from a rival lender.

It is understood that there are few borrowers who have the circumstances to qualify for this incentive. The write-off of up to a fifth of the outstanding debt has been revealed to merely be a tactic for other brokers to consider taking negative-equity clients under their wings. Statistics have shown that homeowners with negative equity are highly likely to defer to a rival lender because of the financial circumstances surrounding their loan.

GMAC’s scheme may currently appear to be too good to be true, for both the lender and the discerning borrowers it contacts. The company explained that the current situation was simply a pilot scheme to see if the procedure heralded any unwanted circumstances.

Companies offering schemes similar to the system by GMAC have revealed criteria of sorts for those considered for such a write-off. It appears that there is bad news for consumers of a bad credit record, as they would be unlikely to be considered. This is because rival lenders would be unlikely to accept clients who could be liabilities with keeping up to mortgage payments.

High Street Banks like NatWest and Halifax are currently offering mortgages that are marginally less expensive than normal to consumers who are battling with negative equity. In some cases, it appears some clients can be a bank’s greatest assets, as they would be unlikely to be re-mortgaging any time soon.

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